The Importance of Business Interruption Insurance: Protecting Your Company from Financial Loss

4/22/2023 (Permalink)

Business interruption insurance is a type of policy that covers the financial losses your business may suffer if it's unable to operate due to a covered loss. Business interruption insurance can be purchased as part of a general liability insurance package or as a standalone policy.

The purpose of business interruption insurance is to provide financial assistance when your company cannot operate because of an insured event (a covered loss), such as fire, flood or other natural disaster.

What Does Business Interruption Insurance Cover?

Business interruption insurance covers the loss of revenue, profits and expenses that may result from a covered interruption.

Loss of Revenue

This coverage pays for lost income if your business can't operate due to a covered event. For example, if you have a retail store and there's no power for an extended period of time due to a storm or other event (e.g., flood), then you may not be able to sell any products during that time period. 

What Are the Types of Business Interruption Insurance? There are two primary types of business interruption insurance: full and partial.

Full Business Interruption Insurance

(FBI) covers your business from the time it's disrupted by an insured event until it's back to normal operations. This type of policy typically has a maximum payout amount, which may be determined by the value of your inventory or other assets or revenue losses sustained during the disruption period. You can purchase FBI on its own or as part of a larger package that includes other types of coverage, such as property damage and liability protection for third parties who might be affected by your inability to operate normally due to some type of disaster scenario.

Partial Business Interruption Insurance

(PBIC) provides coverage only when there is an interruption in operations caused by something like fire damage or theft--but not if those events result in total destruction of your building structure itself (such as with earthquakes).

What Are the Eligibility Requirements for Business Interruption Insurance?

The first thing to consider is whether or not your business is eligible for this type of insurance. If you're just starting out and don't have much of a track record yet, then it's unlikely that an insurance company would be willing to take on the risk of insuring your new venture.

Business interruption coverage usually requires that you have an established business with some kind of history or reputation behind it--at least enough so that other people are willing to pay money in exchange for something related to what you do!

Another important factor is whether or not there are any other businesses operating out of the same location as yours (i.e., if they share walls). If so, this could affect how much money they would receive if there was damage done during a natural disaster.

How Much Does Business Interruption Insurance Cost?

The cost of business interruption insurance depends on several factors. The most important is the amount of coverage you want and how long it's good for. If your business is located in an area that experiences frequent natural disasters or other catastrophes, then you may need more coverage than others.

Business interruption insurance premiums are based on the risk level associated with your industry and geographic location as well as other factors such as:

What Are the Common Exclusions for Business Interruption Insurance?

Business interruption insurance covers losses that result from a covered interruption of business. These losses can include:

Losses due to negligence (e.g., if you accidentally flood your building)

Losses due to natural disasters (e.g., hurricanes, earthquakes) and other events beyond your control

Criminal activity that results in damage or destruction of property

Business interruption insurance is an essential part of protecting your business, but it's also important to understand what this coverage can and cannot do for you. The best way to manage your business interruption insurance is by knowing exactly what it covers, how much time it will cover you for and what other options are available if the need arises.